Mixed Outlook for the New Year

Operations executives should expect both good and bad news in 2003, with some tough issues seemingly resolved, new challenges appearing, and the ever-present possibility of real surprises in the coming months.

WEST COAST GRINCHES FOILED

After weeks of bitter accusations from both sides, a new photograph of Pacific Maritime Association president and CEO Joseph Miniace and International Longshore and Warehouse Union president James Spinosa shows them shaking hands and smiling broadly. Federal Mediation and Conciliation Service director Peter Hurtgen announced a tentative six-year accord on Nov. 23. The accord is subject to ratification by the ILWU’s rank-and-file membership.

“We didn’t get everything we wanted out of this collective bargaining agreement,” says ILWU spokesman Steve Stallone. But the ILWU did secure pension protections for workers and retirees, solid healthcare benefits for workers and their families, wage increases, and new safety provisions on the docks to prevent accidents that claimed five lives in 2002. The PMA got its desired technology and automation upgrades, which the association says will have the added benefit of playing a critical role in the nation’s ongoing national security efforts.

For retailers, the question is how much the lockout brouhaha will affect inventory of hot items such as Sony Corp.’s PlayStation of years past that did not get into the hands of consumers until weeks after Christmas. “At this point, it looks like we shouldn’t be any worse than we have been in previous years, except to the extent that we’ve had the setback of having to deal with all these logistical and supply chain problems for the last several weeks,” says National Retail Federation spokesman J. Craig Shearman, who adds that the West Coast port situation has stolen valuable time from a normally hectic season for retailers. “Merchandise appears to be moving through the ports reasonably normally at this point. We were in a situation a couple of weeks ago where we were worried that merchants were going to see shortages of the products that they needed for the holiday season. Fortunately, it looks like that has cleared up.”

One of the most serious allegations that the PMA made against the ILWU during negotiations was that the latter was conducting an illegal work slowdown, defying Federal Judge William H. Alsup’s order to work at normal levels. The Department of Justice investigated the allegations by both sides and released its findings to the court of Judge Alsup on Nov. 14.

“The United States believes that there is credible evidence that both the PMA and the ILWU are at least partly responsible for this drop in productivity,” the court filing reads. The DOJ’s filing stated that some of the PMA’s foreign membership “discharged all their U.S.-bound containers at their first port of call, usually Los Angeles/Long Beach,” rather than continue on to another scheduled port and wait for a berth. Subsequently, cargo containers piled up at the ports, leaving some terminal yards “jammed with containers, causing delays in movement of cargo to consumers.”

In the end, the DOJ could not determine that either party had “engaged in improper conduct of sufficient scope or effect as to warrant a recommendation” to Judge Alsup to penalize either side for contempt of his order ending the lockout. In the wake of the agreement between the sides, it looks like the PMA’s complaints about productivity have disappeared. “Productivity is fine,” says PMA spokesman Steve Sugerman. “We’ve seen a reduction in the number of ships coming in, so that’s been helping, and the backlog was cleared.”

Nevertheless, Stallone says at press time that the ILWU is still waiting for a response from the DOJ to allegations of questionable “secret meetings held between employer groups and business people and the Bush administration.” After filing a Freedom of Information Act request with the DOJ on Nov. 1 to get documents and information about the meetings, the ILWU seeks to find out if the meetings were “legitimate lobbying, or if they crossed the line into illegal collusion in a collective bargaining process,” Stallone says. “We have not heard back from [the DOJ] yet.”

Although the sparring back and forth might make for interesting reading, Shearman says that retail businesses just want to keep their shelves stocked and kids happy during the holidays. “It’s too early to say for sure whether we’re going to have shortages or not, but certainly, what we’ve been through the last several weeks hasn’t helped.”

3PLS FACE WEAKER DEMAND

A new study from Accenture and Northeastern University suggests that the sluggish economy will significantly reduce demand in 2003 for third-party logistics services at the manufacturing end of the supply chain. The 2002 Annual Accenture/Northeastern 3PL Industry Study, the tenth conducted by Northeastern since 1991 and the third sponsored by Accenture, surveyed 66 executives from the largest U.S. manufacturers and 18 CEOs of global 3PLs.

According to Northeastern University professor of supply chain management Robert Lieb, who designed the study, one of the most surprising findings was that respondents’ satisfaction with 3PL services, after trending upward for five or six years, decreased significantly this year. One of the reasons for this change, says Lieb, may simply be current pressure in the logistics industry to reduce costs and some perception that vendors have not responded aggressively enough.

Characterizing third-party logistics itself as “at least into its adolescent stage, if not its maturity,” Lieb says that although it may be tempting for manufacturers to think of a 3PL as a panacea, “it may not bail you out if you’re in the kind of circumstances that a lot of companies are in right now.”

Lieb points out that as the economy caught up with people in 2002, many companies failed to meet growth projections. Since contracts for third-party logistics services are frequently related to volume, a general slowdown in business affects 3PLs considerably. Although CEOs in the study claimed to be interested in the cost-cutting benefits 3PLs offer, “people are so cowed by circumstances at this point that there’s a lot of reluctance to pull the trigger and do the deal, so the selling cycle seems to be dragged out,” Lieb says.

Unknown economic factors such as the possibility of a war in the Middle East could, of course, change all the current projections. “The volume that [3PLs] do now is global, Lieb says. “I would expect that any prolonged war would have a negative effect on the demand for 3PL services.”

SECURITY SURCHARGE

A new Homeland Security Surcharge is both a reminder of recent events and perhaps a harbinger of more ripple effects. Con-Way Transportation Services announced that effective Jan. 2, 2003, it is applying a surcharge on all shipments moving across the U.S.-Canada border in either direction. The surcharge will be $8 per shipment.

Con-Way, a subsidiary of Palo Alto, CA-based CNF Inc., justifies the charge as necessary to cover the extra costs related to post-9/11 governmental security regulations affecting cross-border shipments. The subject of the cost of security measures, and who should bear them, continues to inspire debate in all quarters. Shippers can probably expect more such charges in the coming months, although the question of the real cost of increased security is still an open one. As ARC Research senior analyst Adrian Gonzalez says about the Con-Way surcharge, “Why is it $8 instead of $5?”

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